Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Thursday, September 30, 2010

Tempted by Gold?

On Tuesday gold jumped above $1,300 an ounce for the first time. On the surface, it seems as if gold will continue skyrocketing upward with no end in sight. Many are tempted to buy now, afraid to miss out on this “sure thing”.

In our blog article back in June (Differing Views on Gold, June 2, 2010 ), we quoted a Wall Street Journal article by author Jason Zwieg titled “Why One Legendary Investor Is More Worried Than Ever”. Mr. Zweig explained how Seth Klarman (president of Baupost Group, a firm in Boston that manages $22 billion of investors’ money) views the current market situation. Mr. Zweig stated in the article that:

“Mr. Klarman specializes in buying securities that nauseate other investors….” Mr. Zweig pointed out how worried Seth is about the world economy, in general. And how does Seth feel about gold as a hedge against the problems of the future? According to Mr. Zweig, Seth believes that all the obvious hedges are already extremely expensive, including gold. Seth was quoted as saying that gold is “Near its all-time high, it’s a very hard moment to recommend gold.”

At that time the price graph of gold’s rise reminded us of the typical graph of an asset bubble. The further it rises, the more so it looks like a bubble waiting to burst. If you must buy, limit your exposure to a small percentage of your portfolio and set a price at which to sell. Then, don’t hesitate to sell if gold reaches that price.

We believe it’s still a hard moment to buy gold. In fact, for us it’s even harder. Sure, gold may well continue its meteoric rise. And if it does, you can rightly say we were wrong. On the other hand, if it crashes, we can say we told you so. Remember our blog post from last week “Words of Wisdom from Warren”, in which we quoted one of Warren Buffet’s famous quotes: Rule # 1: Never Lose Money. Rule # 2: Don’t forget Rule # 1.


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Scrap Gold Prices

November 9, 2010 at 7:10 PM 

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